CDL pays 4.39b yuan for 51% stake in Sincere Prop

Singapore

CITY Developments Limited (CDL) is acquiring a 51.01 per cent stake in Chinese real estate developer Sincere Property Group for 4.39 billion yuan (about S$880 million) as it seeks to transform itself into a major property player in China.

With this, the Singapore-based developer will become the single largest shareholder in Sincere as it acquires a bigger stake than the 24 per cent shareholding it had previously announced it would purchase last year.

As part of the deal, a call option will be granted to CDL which it could exercise to purchase an additional 9 per cent interest in Sincere for 0.77 billion yuan at the same entry valuation. If exercised, it will allow CDL to acquire a 60.01 per cent stake in Sincere for a total of 5.16 billion yuan.

"Given the adverse impact of the Covid-19 crisis and the global uncertainty, CDL has taken the opportunity to negotiate new terms for its investment into Sincere Property, which are significantly improved over the original investment terms announced last year," said CDL in a release to the Singapore Exchange after the market closed on Wednesday.

Sincere will use part of the 4.39 billion yuan to repay a loan previously extended to the developer by CDL. Once the deal is completed, CDL will hold a joint controlling interest in Sincere through an offshore investment vehicle.

As at April 15, the shareholders of Sincere were HCP Chongqing Property Development (HK) Co - owned by Sincere chairman Wu Xu - and Greenland Holdings Group Co, who hold 60 per cent and 40 per cent of Sincere respectively.

After the transaction, Mr Wu's stake in Sincere will fall from 60 per cent to 29 per cent while Chinese developer Greenland Holdings will see its shareholding about halve from 40 per cent to 19.99 per cent.

The new transaction values Sincere at 8.60 billion yuan, almost 50 per cent below its net asset value (NAV) of 16.48 billion yuan as at its unaudited consolidated financial statements for the year ended Dec 31, 2019. CDL had previously announced in May last year that it would acquire a 24 per cent stake in Sincere by investing 5.5 billion yuan, which comprised an equity investment and interest-bearing loans. The investment was to be split equally into two tranches, the first tranche being a four-year interest-bearing loan of 2.75 billion yuan, part of which would be converted into equity.

The second tranche of 2.75 billion yuan was to have been invested once certain conditions were fulfilled.

The deal was not completed by Q4 2019 as expected "due to a variety of factors", said CDL, adding that it did not acquire a stake in Sincere but had extended an interest-bearing loan of 2.75 billion yuan last year.

With this deal, CDL's portfolio allocation in China will go up from 13 per cent as at end December 2019 to 17 per cent as Sincere takes CDL's presence from three cities in China to 18, while broadening its capabilities across property segments to include new asset classes such as business parks.

Sherman Kwek, group chief executive officer of CDL, said: "While there are challenges and uncertainties caused by the Covid-19 pandemic, China remains one of our key overseas markets, and we hold a positive view of the long-term growth and market outlook there. This deal will transform the group's scale and firmly establish CDL as a major player in China's property sector."

Ranked as one of the top 100 developers in China, Sincere has a development land bank of 9.2 million square metres with 64 development projects across mostly Tier 1 and 2 cities in China.

In addition, Sincere has a portfolio of 27 investment properties in the retail, office and hospitality segments. In FY2019, Sincere earned profit after tax and minority interests (Patmi) of 202.5 million yuan (after deducting financing costs of 1.7 billion yuan and excluding any fair value gains on its investment properties portfolio).

Mr Wu said: "CDL's investment will strengthen and expedite Sincere Property's growth as we work closely to prioritise our core business segments. We will also continue to seek new opportunities to increase our land bank and pipeline of properties to achieve stronger sales."

He also highlighted that there are "many opportunities" within Sincere's portfolio to unlock value such as fund management initiatives.

Shares in CDL closed 44 Singapore cents lower on Wednesday at S$7.48.